At Current Savings Rates, Most People Won't...

  The continuing controversy over how best to fund Social Security and Medicare for the next century has kept
  the looming "retirement crisis" on the front page of America's newspapers. While experts argue back and
  forth about just how serious the crisis is, one fact seems clear to all concerned: today's workers must take
  the primary responsibility for funding their own retirements, whether they are 10, 20, or 30 years in the future.

  Traditionally, retirement income has been compared to a "three-legged stool," the legs being Social
  Security, pensions, and savings. But with Social Security looking sick, and today's highly mobile workers -
- especially contractors -- rarely in one place long enough to build up any substantial pension benefits at a
  single place of employment, the primary responsibility for financing a secure retirement is falling more and
  more directly on workers themselves.

  This means that personal retirement savings are now more important than ever. But unfortunately, a recent
  study shows that today's employees aren't saving nearly as much as they'll need to fund safe, secure
  retirements in the 21st century.

  The Workplace Pulse survey, conducted by the Washington, D.C.-based Employers' Council on Flexible
  Compensation (ECFC), shows that while working families saved one third more toward retirement during
  1996 than they did two years earlier in 1994, they're still not saving nearly enough to meet their retirement
  needs.

  Average annual retirement savings rose to $2,388 during 1996, an increase of 11 percent over 1995
  and 34 percent over 1994. Even at this higher rate, the savings of workers in every age group are
  insufficient to meet their retirement income expectations. Expectations for annual retirement income rose
  nearly 8 percent between 1995 and 1996, to $26,256 from $24,372.

  Workplace Pulse found that the average worker aged 25 to 34 saved only $1,761 during 1996, less
  than the maximum contribution limit for Individual Retirement Accounts (IRAs). But according to figures
  developed by Colonial Life Insurance Company, which co-sponsors the annual survey with ECFC, the
  average 30-year-old worker needed to save $662 more each month during 1996 than he or she actually
  did to achieve an annual retirement income of just $26,256 in constant dollars (assuming 4 percent annual
  inflation, 11 percent investment interest rate, and life spans based upon actuarial tables). A 60-year-old
  worker with $140,000 already saved toward retirement should have been putting away an additional
  $2,325 per month to retire on a $26,256 yearly income.

  "There's a huge gap between what people expect and what they will likely receive," says Colonial Life
   Vice President John Penko. "For younger workers, there may still be time to catch up. For older workers,
   it is going to be very difficult if not impossible for them to live their retirement dreams, even though workers
   over 45 are saving 31 percent more than they were two years ago."

  More Self-Reliance

  The 1996 Workplace Pulse survey shows dramatic changes in workers' attitudes and behavior toward
   retirement savings over the past five years, according to Ken Feltman, executive director of the Employers'
   Council on Flexible Compensation.

  "More workers now realize that they can't depend upon employers or the government. One third of those
   surveyed said they'll have to look to themselves to finance their own retirements, while in 1992 only 18
   percent felt that individuals should pay the majority of retirement needs.

  "Workers also realize they aren't saving enough," Feltman observes. "Seventy-one percent of those
  surveyed said they were not setting enough aside for retirement compared to 60 percent in 1992. The
  sad reality is that they're correct; and for many, time is quickly running out."

  The Workplace Pulse survey also found that:

   Savings Gap

  The Workplace Pulse survey reveals a widening "savings gap" for workers at all ages. Although the
  average American worker saved $2,388 per year toward retirement during 1996, the very same
  employees said they should be setting aside $5,850 annually to ensure that their retirement needs are
  met. An annual retirement savings gap of $3,462 exists for the average American worker. However, as the
  accompanying chart shows, the actual gap increases rapidly with the age of the worker. Or put another
  way, while all age groups studied are putting away less than they need to for retirement, the older working
  generation needs to be saving the most -- because it has the least time to make up the difference.

   The Bottom Line

  Feeling smug? Figure the Workplace Pulse survey results don't apply to you because, as a computer
  contractor, you’re pulling down a cool $60,000 -- or $90,000 -- rather than the U.S. average family
  income?  Then you'd better think again, because the 1996 survey findings do apply, in a very real sense,
  to all workers. How? Look at it this way:

  The higher your present working income, the higher your retirement expectations are probably going to
  be.  So, if your goal for annual retirement income is, say, $50,000, then you need to be saving
  considerably more each month than the already-high figures quoted above -- almost certainly a great
  deal more than you're saving today.

  How much do you need to save? There is no single right figure, because what happens to your retirement
  savings is so inextricably linked to the unpredictable rate of inflation. But the best short advice is to save,
  save, save. Save for retirement as if your life depended on it, because someday in the next century it
  certainly will. At the very least, you ought to be maxing out on contributions to every tax-advantaged
  retirement savings plan available to you in your particular employment circumstances. IRAs, 401(k) plans,
  Keoghs, and SEP-IRAs -- contribute the maximum permitted by law and your employer(s) to each one,
  if you can afford it.